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Hey, forex friends! With the Fed still on course to raise rates and the ECB still pushing the pedal to the metal, I’m taking a closer look at EUR/USD for trade opportunities.

Unless you’ve missed this month’s central bank announcements, you should know that the Fed is still on course to raise its interest rates at least one more time this year.

Apparently, Yellen and her team still believe that the economy and the labor market are growing fast enough to warrant preemptive interest rate hikes. Heck, they’re even considering “trimming” their balance sheet as early as this year!

On the other hand, the ECB is still not budging from its easy monetary policies despite the strong inflation in the region. The closest concession they made was moderating their easing bias by removing the phrase “or lower levels” when referring to interest rate options.

Another consideration of mine is the CFTC COT report, which shows non-commercial traders have been long EUR for 7 straight weeks. SEVEN!!! With that many traders on one side, it’s not impossible to imagine a reversal around the corner.

The divergence in monetary policy are reasons why I’m taking a closer look at EUR/USD. In my Trading Prep earlier this week I noted a rising trend line on the pair’s 1-hour time frame.

EUR/USD 1-hour Forex Chart
EUR/USD 1-hour Forex Chart

If you squeeze the chart a bit, you can see that the trend line was part of an ascending triangle pattern. But now that the triangle is broken and the pair looks like it’s about to retest the former support, I’m looking for a possible break-and-retest play.

The 1.1200 handle, in particular, looks pretty major since it lines up with a 50% Fibonacci retracement, the broken trend line support, and the 100 and 200 SMAs on the 1-hour time frame. What’s more, stochastic is now in the overbought region!

EUR/USD Daily Forex Chart
EUR/USD Daily Forex Chart

There’s certainly a lot of room for potential profits if we are in fact seeing the start of another downtrend leg for the euro.

As you can see on the daily chart, the bounce from 1.1300 could lead to a possible move back down to the 1.0950 area of interest or even the pair’s 2016 lows near 1.0500. And, between the Brexit negotiations, Greek debt drama, and Europe’s banking crisis, I’m thinking there’s no shortage of potential bearish news that could pull the euro lower!

What do you think? Is it time to short EUR/USD? Or should I wait for a bit more momentum before shorting the common currency against the Greenback?

Huck's Signature

See also:
Latest Weekly Trading Prep
My Q4 2016 Forex Trade Review and Reflections
HLHB System’s 2016 Performance Summary
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This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.